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2 Money and Capital i n Economic Developmen t Parth J. Shah A quick glanc e a t m y Austria n librar y ( a rather complet e collec tion i f I ma y sa y so ) fail s t o pic k u p an y wor k wit h "economi c development" o r "economi c growth " i n it s title . Despit e bein g part o f th e moder n economi c scienc e sinc e it s inception , a s a coinitiator o f the marginalis t revolution , do Austrians have noth ing to say about ancien t problems of economic growth an d devel opment ? Fortunately , a slight reflectio n prove s th e impressio n o f the quick glance misleading. Austrians did not have to create a special discipline of development economic s fo r tw o reasons : first , thei r conceptio n o f th e nature of the economic problem facing society; second, their articulation o f th e natur e o f th e economi c theor y o f economy-wid e phenomena (th e domain of macroeconomics). Following Lionel Robbins ([1932] 1984), mainstream economic s stilll see s the economic problem facin g a n individual o r a society as tha t o f allocatio n o f scarc e resource s amon g alternativ e an d competiting ends. In this view, the field of economics is a problem or a set of problems o f rational choic e among scarc e resources of land, labor , an d capital ; an d economi c development , therefore , becomes a special type of problem of allocation and accumulatio n 15 16 Part h J . Sha h of resources, especially o f the produced mean s of production (capi tal ), an d s o th e subjec t i s give n a specia l an d distinc t treatment . The ver y wor d "problem " implie s th e existenc e o f som e "solu tion ."2 On e effec t o f thi s perspectiv e i s th e apparen t appea l o f government plannin g t o achiev e th e goal s o f development . Unde r Robbins's visio n o f economics , economi c developmen t i s see n a s a proble m tha t ca n bes t b e solve d b y methodica l an d detaile d rational planning. 3 At leas t sinc e Hayek' s "Economic s an d Knowledge " ([1937 ] 1980), Austrian s hav e define d th e scop e o f economic s a s tha t o f explaining creation , dissemination , an d us e o f knowledg e i n soci ety —that o f coordinatio n o f individuals ' articulat e an d inarticu late knowledge . Haye k i n hi s th e "Us e o f Knowledg e i n Society " ([1945] 1980 , 77-78) provide s a summary statement : The economic problem of society is thus not merely a problem of how t o allocate "given" resources—if "given " is taken to mean given to a single mind whic h deliberatel y solve s th e proble m se t b y thes e "data. " I t i s rather a problem of how to secure the best use of resources known to any of the members of society, for ends whose relative importance only thes e individuals know. Or, to put it briefly, it is a problem of the utilization of knowledge which is not given to anyone in its totality. The proble m i s o f coordinatin g individua l plan s reflectin g de centralized decisio n makin g o n th e basi s o f disperse d knowledge . The pric e syste m provide s informatio n a s well a s incentive s t o ac t in way s s o a s t o brin g abou t meshin g o f individua l plans . Th e price syste m perform s it s functio n wel l withi n th e framewor k o f private propert y an d contrac t la w (Mise s 1981) . Legal , political , and economi c institution s an d policie s tha t allo w th e price syste m to operate an d thereb y foste r coordinatio n woul d lea...

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